DEVELOPMENT: When dealing with the devil pays

How much trickles down to the poor out of the big investment projects in the developing world?

LONDON, 13 September 2011 (IRIN) - The development community has traditionally held the corporate world at arm’s length, either ignoring it or treating it with deep suspicion, but there are benefits to cooperation, specialists say.

Peter Davis, a research fellow at Britain’s Overseas Development Institute, said: “In development terms, the debate tends to be polarized between those of us who think the corporate sector can be broadly helpful in development and those who think it's one step down from the devil himself.

"But look at Anglo-American. Their procurement spend in developing countries is broadly similar to the British government’s entire overseas development budget. A 2005 study of Unilever's activities in Indonesia found the company created 5,000 jobs in the main business, but supported 300,000 jobs in the wider economy.

“So why don’t development plans for developing countries involve the corporate sector? The UN development framework for Azerbaijan, for instance, makes no mention of what BP does. Given that it provides something like 75 percent of the economic activity in the country, it seems curious, to say the least, that its activities are not involved in the development planning,” he told an audience in London’s Parliament on 7 September.

The suspicion between the two cultures is certainly mutual. Anton Mifsud-Bonnici, from BP’s strategy and policy department, described the development community as well-intentioned but inefficient. “Yes there is a rapprochement, at least ideologically speaking, between ODA [official development assistance] and FDI [foreign direct investment], at least the rhetoric is such. But last year at the European Development Days in Brussels, there was not even one corporate sector speaker invited to speak.”

He says what companies such as BP bring to the development process is not just huge resources but their willingness to take risks. “We take the risks that allow the government to spend money in health, education and housing, and not, for example, explore for oil and gas and find a dry hole. That is a true social service.”

Other companies contribute to development more directly. When ArcelorMittal took over the old LAMCO iron ore concession in Liberia, it had to rebuild infrastructure destroyed during the civil war, including 260km of railway line, and the export terminal at Buchanan. “We have spent US$800 million on this project,” says Charlotte Wolff, head of corporate responsibility. “We have spent far more of it in Liberia than we originally thought possible. And our presence also sends a clear signal that Liberia is open for business.”

Stronger institutions

So how can donors work with big business to get the best results for development? The obvious way might be in improving physical infrastructure, but for Wolff that is not the priority. “We would very much benefit if the donors, bilateral donors in particular, would focus their efforts on strengthening government institutions – the judicial system, health and safety regulator, environmental regulator... As a company it’s not an area we can support, it’s not our role to be involved in the judicial system, but it creates a better business environment if all those things are in place.”

If you sign a contract with someone weak then it just gets renegotiated when the price changes, or when the government starts to enjoy the fruits and begins to think it can do better without you

LAMCO, the Swedish company that developed the iron ore mines in Yekapa, once provided cradle-to-grave facilities for the town – schools, clinics, housing, recreational facilities, even a swimming pool, now cracked and empty. Local residents who expected ArcelorMittal to do the same have been largely disappointed.

“I think those days have definitely gone for having that kind of enclave,” Wolff told IRIN. “We do run the old schools, but what we have to do is build the capacity of the local government, because if you do it all yourself you risk a repeat what happened with LAMCO. Our key objective is to reduce the country’s dependence on us, because otherwise it is too vulnerable. LAMCO left and look what happened.”

The knack in working with the corporate sector, says Davis, is to get a better understanding of what it will and will not do. “In the case of ArcelorMittal, they needed those 260km of railway, so that is something they were always going to do because there is a very solid commercial necessity for it. Then there are things they might do if there was a better framework in which to operate – and that could include things like better safety standards. There’s stuff they might do further down the line, and then there are things they are never going to do.”

Wolff’s plea for more effective regulation was met with some scepticism. Alex Prats, Oxfam’s former regional director for West Africa, said his experience had been that the private sector benefited from weak government – the weaker the governments, the better the contracts, the fewer taxes they pay, the less pressure to respect human rights. “My experience is that companies maximize their profits when governments are weaker.”

But Mifsud-Bonnici said any benefits from dealing with weak governments were only ever short term. “If you sign a contract with someone weak then it just gets renegotiated when the price changes, or when the government starts to enjoy the fruits and begins to think it can do better without you!”

DEVELOPMENT: When dealing with the devil pays

How much trickles down to the poor out of the big investment projects in the developing world?

LONDON, 13 September 2011 (IRIN) - The development community has traditionally held the corporate world at arm’s length, either ignoring it or treating it with deep suspicion, but there are benefits to cooperation, specialists say.

Peter Davis, a research fellow at Britain’s Overseas Development Institute, said: “In development terms, the debate tends to be polarized between those of us who think the corporate sector can be broadly helpful in development and those who think it's one step down from the devil himself.

"But look at Anglo-American. Their procurement spend in developing countries is broadly similar to the British government’s entire overseas development budget. A 2005 study of Unilever's activities in Indonesia found the company created 5,000 jobs in the main business, but supported 300,000 jobs in the wider economy.

“So why don’t development plans for developing countries involve the corporate sector? The UN development framework for Azerbaijan, for instance, makes no mention of what BP does. Given that it provides something like 75 percent of the economic activity in the country, it seems curious, to say the least, that its activities are not involved in the development planning,” he told an audience in London’s Parliament on 7 September.

The suspicion between the two cultures is certainly mutual. Anton Mifsud-Bonnici, from BP’s strategy and policy department, described the development community as well-intentioned but inefficient. “Yes there is a rapprochement, at least ideologically speaking, between ODA [official development assistance] and FDI [foreign direct investment], at least the rhetoric is such. But last year at the European Development Days in Brussels, there was not even one corporate sector speaker invited to speak.”

He says what companies such as BP bring to the development process is not just huge resources but their willingness to take risks. “We take the risks that allow the government to spend money in health, education and housing, and not, for example, explore for oil and gas and find a dry hole. That is a true social service.”

Other companies contribute to development more directly. When ArcelorMittal took over the old LAMCO iron ore concession in Liberia, it had to rebuild infrastructure destroyed during the civil war, including 260km of railway line, and the export terminal at Buchanan. “We have spent US$800 million on this project,” says Charlotte Wolff, head of corporate responsibility. “We have spent far more of it in Liberia than we originally thought possible. And our presence also sends a clear signal that Liberia is open for business.”

Stronger institutions

So how can donors work with big business to get the best results for development? The obvious way might be in improving physical infrastructure, but for Wolff that is not the priority. “We would very much benefit if the donors, bilateral donors in particular, would focus their efforts on strengthening government institutions – the judicial system, health and safety regulator, environmental regulator... As a company it’s not an area we can support, it’s not our role to be involved in the judicial system, but it creates a better business environment if all those things are in place.”

If you sign a contract with someone weak then it just gets renegotiated when the price changes, or when the government starts to enjoy the fruits and begins to think it can do better without you

LAMCO, the Swedish company that developed the iron ore mines in Yekapa, once provided cradle-to-grave facilities for the town – schools, clinics, housing, recreational facilities, even a swimming pool, now cracked and empty. Local residents who expected ArcelorMittal to do the same have been largely disappointed.

“I think those days have definitely gone for having that kind of enclave,” Wolff told IRIN. “We do run the old schools, but what we have to do is build the capacity of the local government, because if you do it all yourself you risk a repeat what happened with LAMCO. Our key objective is to reduce the country’s dependence on us, because otherwise it is too vulnerable. LAMCO left and look what happened.”

The knack in working with the corporate sector, says Davis, is to get a better understanding of what it will and will not do. “In the case of ArcelorMittal, they needed those 260km of railway, so that is something they were always going to do because there is a very solid commercial necessity for it. Then there are things they might do if there was a better framework in which to operate – and that could include things like better safety standards. There’s stuff they might do further down the line, and then there are things they are never going to do.”

Wolff’s plea for more effective regulation was met with some scepticism. Alex Prats, Oxfam’s former regional director for West Africa, said his experience had been that the private sector benefited from weak government – the weaker the governments, the better the contracts, the fewer taxes they pay, the less pressure to respect human rights. “My experience is that companies maximize their profits when governments are weaker.”

But Mifsud-Bonnici said any benefits from dealing with weak governments were only ever short term. “If you sign a contract with someone weak then it just gets renegotiated when the price changes, or when the government starts to enjoy the fruits and begins to think it can do better without you!”